The Business Law Brief sm (June, 2000)

  1. Income Partner Not Vicariously Liable for Malpractice of Law Firm Partners.
    In a case of first impression, certainly in Illinois, but perhaps anywhere in the country, Cook County Circuit Court Judge Michael J. Hogan has ruled that a law firm’s income partners are not vicariously liable for the malpractice of the firm’s equity partners. Dismissing the cause of action against the income partners, the Judge distinguished between those partners who have equity and management interests in the firm, and the income partners who are essentially treated as employees. The case involves the now defunct firm of Gottlieb & Schwartz and its former income and equity partners. An appeal is certain. Terry A. Davis, et al. Vs. P. Michael Loftus, et al, No. 97 L 08918.

  2. U.S. Supreme Court: Only Bankruptcy Trustee Can Recover From 3rd Party.
    Restricting the rights of creditors who provide services to a company during its bankruptcy proceedings, the U.S. Supreme Court has ruled that such creditors cannot collect what they’re owed from collateral held by a secured creditor. Only a bankruptcy trustee is authorized to collect fees in that manner. Justice Antonin Scalia wrote for the unanimous court that such companies should either deal directly with the secured creditor, or insist on being paid in cash. Hartford Underwriters Insurance Co. Vs. Union Planters National Bank, No. 99-409.

  3. Fair Debt Collection Practices Act: Statute’s Applicability Determined at Time of Debt, Not Collection; Dunning Letter Must State All Charges Due as of Date of Letter.
    Reinstating a claim against two law firms for their failure to comply with the Fair Debt Collection Practices Act, the 7th Circuit has ruled that the law’s applicability is determined at the time the debt is incurred, and not when collection proceedings begin. Debtor took mortgage on personal residence, to which the Act applied, but at time of collection, was leasing home to a third party, to which the Act did not apply. Also, dunning letters sent made demand only for unpaid principal balance and not accrued interest and other charges. Where amount claimed changes daily, dunning letter must set forth the amount due as of date of letter. Kevin Miller vs. McCalla, Raymer, et al, No. 99-3263.

  4. Property Damage" Term in Policy Includes Lost Computer Usage.
    Business losses from the loss of computer access, loss of use and functionality, are covered under the insurance term "physical damage," an Arizona Federal District Court Judge has ruled. "The court finds that ‘physical damage’ is not restricted to the physical destruction or harm of computer circuitry but includes loss of access, loss of use and functionality,'' the judge said in last month's decision. Ingram Micro, Inc. vs. American Guarantee & Liability Co.

  5. New Law Removes Stock Options from "Salary," Makes Them Benefits.
    Overruling the Department of Labor position declaring that stock options given to employees were taxable as wages, President Clinton has signed into law The Worker Economic Opportunity Act. The new law defines such stock options as a benefit akin to health insurance rather than a component of base wages.

  6. FTC Establishes Financial Privacy Rules.
    The FTC has established new regulations for information—sharing among some websites were set in place. The rules require financial institutions to provide data collection notices to consumers, and to give them choices about how and whether such information is used or shared. The rules cover online mortgage brokers, real estate brokers and tax preparers, and take effect on July 1. For a pdf version of the new rules, click here.

  7. Without Notice, UCC Security Interest in Livestock Valid for One Year Only in Illinois.
    Interpreting Section 9-307 of the UCC, and the amendments to the statute required by Section 1631 of the Federal Food Security Act, a Knox County Court has ruled that a bank’s failure to notify buyer of livestock of its security interest within one year means bank’s security interest lapsed. In Illinois and other "direct notice" states, the one year statute prevails; in states having a central filing system, the statute of limitations is 5 years, unless an exception to the statute exists. First Midwest Bank, N.A., vs. IBP, Inc., No. 98- LM 206.

  8. 17 Month Delay in Notice of Claim to Insurer Under CGL Policy Unreasonable as a Matter of Law.
    "Advertising injury" provision covered claims under corporate Defendant’s advertising of new computer program composed of trade secrets of Plaintiff allegedly learned by means of Defendant’s subterfuge. Policy condition that notice be sent "as soon as practicable" means "within a reasonable time." As a matter of law, a delay of 17 months after suit is filed is unreasonable. Northbrook Property & Casualty Insurance Co. vs. Applied Systems, Inc., No. 1-98-1170.

  9. Anti-Reliance Clause in Contract Worth its Weight in Hasbro Toys.
    Summary Judgment was properly granted to Defendant who became sole shareholder after buying brother’s shares of stock in family business, then sold business to Hasbro Toys. Selling brother contended that he never would have sold his shares, or sold them for so little, if he had known of plans, and that he did so only because Defendant had persuaded him that he would never sell the company or take it public. However, contract for purchase of shares contained detailed clause denying reliance on any representations, and superseding all oral representations. Rissman vs. Rissman, No. 99-2719 (7th Circuit, May 23, 2000).

  10. No More Legal Opinions: Treasury
    Knowing that a legal opinion in favor of a corporate tax shelter which is later disallowed by the IRS will help a company avoid penalties, the Treasury Department is proposing to tighten up Circular 230, a set of regulations that set standards for professionals authorized to represent taxpayers before the IRS. On May 9, a lengthy list of proposed changes that, if adopted, could make it substantially more difficult for companies utilizing tax shelters to obtain supporting opinions from lawyers, accountants, and other related professions.

    http://dowjones.wsj.com/i/law/SB957967957405431519-law-working-the-web.html

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